John Hardy
Head of FX Strategy
Summary: Investors flock to new frontiers as new-age tech spurs productivity boom.
In 2021, economists discover that the growth rates in many frontiers and emerging markets have been woefully underestimated in recent years, especially when delving into the private sector and entrepreneurial developments. Closer analysis reveals that key technologies may lie at the root of an acceleration in private sector productivity growth far beyond anything seen in the developed markets in recent decades. From the growing speed and lower costs of internet provisioning to an explosion of the use of mobile-based payment systems, growth of the private sector and an entrepreneurial spirit are clearly behind a revolution in the quality as well as the quantity of growth.
2021 proves to be a Eureka moment for investors on the anticipation that three areas of technology are set to deliver an enormous further boost to frontier and emerging market growth in the coming years. The first is the arrival of satellite-based internet delivery systems, which are set to crush the price of internet provisioning, both increasing uptime and coverage area, but more importantly delivering an order of magnitude increase in download speeds. SpaceX’s Starlink will be the first on the scene there, with as many as 1,500 operational by the end of 2021. In emerging and frontier markets, education and business productivity will reap the benefits. Second is the ongoing revolution in fintech payment and banking systems which have already given billions of people access to the digital economy via their mobile devices.
Finally, just as reliable mobile telephony suddenly replaced creaky, unreliable landline telephone systems in emerging and frontier markets over the last few decades, drone technology is set to revolutionise delivery systems and reduce the disadvantages and costs of living away from the largest cities and towns. Drone technology combined with automation also has applications in agriculture, where practices in many under-developed rural areas across the world stand to gain the most from productivity upgrades.
Trade: long emerging market currencies on superior growth outlook.
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2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.